Evaluating the Effectiveness of International Programs in Encouraging Adoption of Basel Committee Principles: A Comparative Analysis of Pakistan, Switzerland and the United Kingdom

Global financial stability is the fundamental cornerstone in achieving the economic prosperity, and requires robust banking supervision and international checks and balances. The modern nature of the globally interconnected financial system means that any weakness in one country's regulations can have far reaching consequences across borders.

The Basel Committee on Banking Supervision (BCBS) is one of the primary global standard setters for prudential regulations of banks across the world. It also facilitates cooperation with the banks and financial organizations on banking supervision. It has numerous purposes, including but not limited to strengthening the regulation, supervision and practices of banks worldwide in order to maintain the global financial stability.

There are three key mechanisms that have evolved to evaluate and encourage countries adoptions of the Basel Committee principles: the International Monetary Fund's Financial Sector Assessment Program (FSAP), Basel Committee own compliance Evaluations, and National Requirements for foreign financial institutions seeking market access.

Financial stability refers to a condition where the financial system operates efficiently without experiencing widespread crisis and failures. A stable financial system demonstrates resilience during economic stress periods and efficiently channels productive resources for its uses. It also maintains sound risk management practices while supporting steady economic growth and avoids excessive volatility in asset prices that could disrupt monetary policies and economic growth.

In a stable financial system, the system is able to absorb severe economic shocks via self-adjusting mechanisms that automatically protect the global financial system from adverse events that could have disruptive effects on financial systems across the globe. It is imperative to mention that financial stability is uppermost for the economic growth, as the financial system is responsible for the transactions for the real-world economy.

The absence of financial stability was demonstrated in the 2007 to 2009 financial crisis (the great recession). During this period, payments could not be expected to arrive in time, asset prices deviated from their intrinsic values and banks were unable to finance profitable projects. The stability of financial systems is evident when financial institutions are able to provide communities, businesses and households with financial services, profitable resources and products which are necessary elements in order to grow and to participate in the well-functioning economy. Financial stability is the highlighted concern of the global financial institutions and ensuring the financial stability means the system is capable of providing efficient services in all circumstances and absorbing economic shocks, and must have the capacity to sustain in crucial situations, in which the banks, insurers and payments works smoothly.

Since its establishment in 1930, the Bank for International Settlement (BIS) has played a crucial role in global financial stability, including, the regulation of the banks. BIS has been playing a vital role from settling reparation payments-imposed on Germany following the World War I, to serving as a pivotal actor for the central banks for monetary and financial stability.

After the World War I, Germany was required to pay reparations to Allied powers particularly France and United Kingdom for civil damages during the war under Treaty of Versailles. Germany was also facing a lot of economic problems including hyperinflation, high debt and unemployment making it difficult to pay reparations. At that time, two plans were introduced to ease the reparation schedule of Germany. First was "The Dawes Plan 1924" and the second was "The Young Plan 1929". The Bank for International Settlement (BIS) was created in the context of the Young Plan, signed by the "League of Nations" on 20 January 1930 at the Hague conference under the treaty name, "Convention respecting the establishment of the Bank of International Settlement (BIS)". The treaty was signed in Switzerland between Belgium, France, Italy, Germany, the United Kingdom and Japan. It was settled that the BIS would be base in Basel, Switzerland.

Contributions of BIS

The BIS has played a crucial role in maintaining financial stability by acting as trustee and agent in international financial arrangements, starting with managing Dawes and Young loans tired to German reparations after World War I, acting as a neutral intermediary between Germany and the Allied creditor states. The functions and contributions of BIS has evolved significantly over time, expanding in providing technical cooperation between central banks, establishing its own research on "international monetary conditions, capital flows, and payment systems which provided an analytical basis for policy coordination and discussion among central bank governors", after The Great Depression, acting as neutral fiscal agent between belligerent parties, acting as official agent of the European payments union, sharing reports and statistic regarding economic stability with other member countries worldwide, maintaining global financial data, generating financial reports, and establishing the Basel Committee on Banking Supervision (BCBS).

After World War I, the BIS was appointed as the trustee to collect the reparations from German government under the (so called Dawes and Young Loans in 1924 and 1930 respectively). During the 1930s, "The Great Depression", the BIS started acting as the cooperating agent between central banks (including foreign exchange transactions, international postal payments, reserve management and gold deposit. The BIS also acted as the central platform for regular meetings of the central bank officials and governors.

After "The Great Depression", the BIS established its own research center under the guidance of its first economist advisor Swede Per Jacobson and continued to collect banking and financial data and reports from the member banks. The sole purpose of this approach was to help and maintain the global financial stability by coordinating with member banks which includes Bank of England, Banque de France, Reichsbank, Monetary authorities acting in a central bank capacity, later Federal Reserve and financial institutions to update the economic conditions globally after "The Great Depression".

In September 1939, after the declaration of war by Germany against France and the United Kingdom, the BIS adopted a neutral policy by dictating all of his member banks to decline business activity and controversial neutrality. The purpose was to be neutral in this sensitive and crucial time, (excluding the banking operations that might benefit one belligerent party to the detriment of the other, imperatively), while continuing to assist the central banks to fulfill obligations so far as was consistent with neutrality.

The BIS also acted as technical agent and during the aftermath of World War II when Benelux countries, France and Italy signed the first agreement on Multilateral Monetary Compensation in November 1947. Moreover, the BIS was appointed as the official agent of the European Payment Union (EPU), a multilateral clearing mechanism established to facilitate intra-European trade and payments by balancing among member countries and reducing reliance on scarce foreign exchange.

The BIS played an important part in coordinating the response of the Central Banks of Belgium, Canada, France, Germany, Italy, Japan, the Netherlands and the United Kingdom which were commonly referred as Group of 10 (G10) under the Bretton Woods system, under the Bretton Woods system, the post-World War II, the international monetary framework based on the fixed but adjustable exchange rates and there was convertibility of the US dollar into gold.

History and background of the Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision (BCBS) was formed by the efforts of the G10 central bank governors and the BIS after the collapse of Bankhaus Herstatt in Germany and of Franklin National Bank in the United States, primarily for the purpose of maintaining the financial system and helping develop regulations and a system of supervisory checks and balances to avoid adverse circumstances in the global financial stability. In 1988, the BCBS, first time in history, introduced the "Credit risk measurement framework" in order to check the financial stability of the economic world and it was accepted globally by international active banks. The capital accord has since been further refined in capital framework often referred to as Basle I, Basel II (2004) and Basel III (2017) frameworks.

What is the Basel Committee on Banking Supervision?

The BCBS plays the role of the global standard setter for the prudential regulations of banks and also serves as the coordinator for banking supervisory matters. It focuses on recommending regulations, supervision and practices of the banks across the globe with the sole purpose of global financial stability.

The BCBS ensures the exchange of information on developments in the banking sector along with issues raised by financial institutions. It also coordinates with other active banks across the globe by sharing techniques, approaches and issues in the financial sector. Primarily, it legislates charters, regulations and ensure its implementation by monitoring through its Basel Committee Compliance reports.

The BCBS also coordinates with the International Monetary Funds (IMF) through its Financial Assessment Sector Program (FSA) and the World Bank to ensure effective implementation of the BCBS prudential standards especially Basel capital standards (Basel I, II, III), Liquidity standards (LCR, NSFR) and supervisory principles and the BCBS works alongside with other international bodies involved in financial stability, including the Financial Stability Board (FSB), the Committee on payments and Market infrastructures (CPMI), and the International organization of Securities Commission (IOSCO) to ensure compliance and effectiveness of global financial regulation.

Core Principles of BCBS

There are 29 core principles of the BCBS which are "de facto minimum standard" to make the supervision of banks more effective and uniform worldwide and to implement sound prudential regulations. These principles were originally issued in 1997 by the BCBS, and are considered as the benchmark in order to assess the quality of each country's supervisory systems and to achieve and identify the baseline level for supervisory and sound practices. Core principles of BCBS are also used by IMF's Financial Assessment sector Assessment Programme (FSAP) to check the effectiveness of the country's' supervisory system.

The 29 core principles are broadly categorized into two groups; the First group (Principles 1 to 13) specifically focuses on the powers, responsibilities and functions of the supervisors, while the second group (Principles 14 to 29) specifically focuses on prudential regulations and requirements for banks. Although the BCBS develops supervisory framework and regulations, including the Basel core principles, however it does not have any binding effect on countries. The BCBS formulates recommendations and internationally accepted benchmarks rather than enforceable rules. Accordingly, these rules and principles are incorporated by national authorities of a country into their domestic legal and regulatory frameworks incompliance with their own institutional structures and legal systems. Hence, this flexible approach allows countries to align Basel standards with local conditions while promoting a broadly consistent level of prudential supervision across the globe.

There are different assessment methodologies for compliance with the core principles. The first one is self-assessment which is performed by banking supervisors themselves. (Self-assessment refers to the internal evaluation carried out by national supervisory authorities to review and check the compliance of Basel core principles within their regulatory and supervisory framework). Self-assessment are often used as preparatory or diagnostic exercise before external evaluations. The second one an assessment by the IMF's (FSAP) and World Bank (joint IMF-World Bank program) using the core principles and making assessment reports of each country's implementation including banking stability, regulatory framework, risk exposure and compliance with international standards (including the Basel core principles). These assessments are not quarterly for every country, however in jurisdictions includes important financial sectors FSAP typically conducted assessments on a multi-year cycle, often every five to ten years. FSAP assessments includes mandatory participation of certain large economies and optional assessments for others. The third can be the reviews conducted by the consulting firms. These are not mandatory and undertaken at the initiative of national authorities. Such reviews are often conducted when the country is preparing itself for forthcoming FSAP or peer reviews or if they need any assistance with regulatory reforms within country. The fourth assessment is peer reviews (which refers to an evaluation in which different countries from different jurisdictions review and assess each other's regulatory and supervisory frameworks against Basel core principles. These are performed at regional and international level and substantially carried out by fellow supervisors who possess extensive experience in banking supervision). Peer reviews are not mandatory and are not legally required, however, are used to promote consistency, share best practices, weaknesses, and strengthening supervisory effectiveness through mutual evaluation and cooperation. These assessments are made in order to check the loop holes in the banking supervisory system and compliance with the core principles which are legislated for the better purpose of the financial stability.

The FSAP begun in 1999 to serve as comprehensive assessment of a country's financial sector. In developed economies, an FSAP is conducted in order to analyze the quality of the financial system, their resilience and supervisory framework for resolving financial crises or major breakdown. However, in developing and emerging economies, the FSAP works along with the World Bank to conclude an assessment of progress towards compliance within the Basel core principles and analyze the banking framework and resilience of the banking and financial system of that country. After analyzing the supervisory framework of the country, the IMF usually generates the report and put suggestions and recommendations for better and smooth functioning of the financial system and for avoiding risks posed by loop holes in the financial sector. The IMF's FSAP is a crucial tool to foster the adoption of the Basel Committee core principles and to improve banking sector regulations worldwide.

The RCAP was started in 2012 by BCBS to monitor and assess the adoption of Basel committee principles and standards and foster transparent environment for the international banks. RCAP consists of two distinct but complementary frameworks. The first one is "Monitoring" and the second is "Assessment".

The RCAP focuses primarily on monitoring the adoption and implementation of Basel III standards, as these constitute core updated Basel regulatory framework. Timeliness, consistency and outcomes are the major concerns of RCAP, it monitors the adoptions of Basel III standards in the member jurisdiction (Timeliness) and assesses the implementations of the Basel III standards across jurisdictions (consistency) and also plays a crucial and important role in accessing the implementation of these standards across the banks (outcomes). RCAP also considers earlier Basel standards where relevant but primarily focused on Basel III as it forms the core current of Basel regulatory framework.

RCAP's examinations and role goes beyond simply monitoring that whether jurisdictions adopt Basel standards on time or not. It also includes examinations across jurisdiction in assessing consistency of implementations of by reviewing how national regulatory frameworks comply with Basel standards. Ultimately, this helps to demonstrate that whether there is just formal compliance of Basel standards or material compliance as per Basel committee's expectations. Practically, this assessment demonstrates assessing key areas such as risk-based capital requirements, Liquidity Coverage Ratio (LCR) and vital rules which addresses systemic importance of banks. Additionally, RCAP also conducts thematic and bank-level assessment reports which includes examination of how prudential ratios are calculated by individual banks. This promotes the uniform application and implementation of Basel standards and improves comparability across jurisdictions.

One of the vital features of RCAP lies in its flexibility and evolving assessment framework. RCAP has its own comprehensive RCAP handbook which particularly provide guidance to assessors and also serves as the reference to jurisdictions which conducts internal reviews of their regulatory framework implementation. The RCAP's handbook updates periodically to reflect lessons learned from previous/earlier assessments and also accommodate the differences within the legal and institutional arrangements across jurisdiction. Consequently, RCAP not only serves as assessment platform but a platform which update, guides country's supervisory authorities in aligning their domestic frameworks with global regulatory standards.

Additionally, the RCAP monitoring primarily examines whether countries are making material compliance with Basel III standards on time. Recent reports suggested that many of the member jurisdictions have already incorporated Basel III standards in their domestic regulatory framework through material compliance, especially those countries which are meant to be fully implemented by January 2023. Moreover, a lot of countries are still progressing and implementing Basel standards in different areas such as interest rate risk in banking book, margin requirements for derivatives, and new exposure rules for emerging risks, including crypto assets. The RCAP demonstrates this information through its online available platform in simple and transparent way, in which it uses color coded indicators to show level of progress of different countries.

The RCAP assessment also focuses on indicating the important Basel III components, such as operational risk standards, revised credit risk rules, and output requirements implemented by member jurisdictions. It also highlights the gaps between the country's financial system and point out them and also tells which area need developments.

Consequently, the RCAP plays a crucial role in conducting assessment and generating compliance reports of implementations of Basel standards and also provides handbook for domestic supervisors in order to improve their domestic regulatory and supervisory framework. RCAP plays an important role in global financial stability and helps in fulfilling promises made through bodies like Financial stability board and the G20.

National requirements consist of regulations and regulatory frameworks which a foreign bank must have to follow for conducting its operations in that country. These requirements and rules are mainly imposed for domestic safety and for making sure that foreign banks do not pose any substantial risk to domestic markets. Since regulatory priorities and economic condition varies country to country, hence foreign requirements imposed on foreign banks are not identical everywhere. Consequently, national requirements consist of national laws which regulate how a foreign bank may enter in the market, whether it's through branches or subsidiaries, what type of activities they are permissible and their mandatory compliance with foreign laws of particular country.

In the United States, for instance, foreign banks are not permissible to operate without getting approval from regulatory bodies. This process is conducted by authorities such as Office of the Comptroller of the Currency (OCC) and the Federal Reserve. Foreign banks must submit detail information about their past compliance with Basel standards, ownership structure, financial positioning, and management. They are made obligatory to accept and comply with domestic regulatory framework, primarily for the purpose of ensuring that foreign banks meet strict requirements related to capital adequacy, risk management, and anti-money laundering controls. Moreover, foreign banks may face certain limitations imposed by domestic financial regulators, these limitations include deposit insurance and restrictions on prohibited banking activities. These practices protect consumer's confidence and eliminate unfair advantages over domestic banks.

Many countries have Strict and continuous supervisory practices for foreign banks. This may include regular inspections, reporting obligations, and detailed information sharing with financial regulators. Some countries go beyond this practice and requires foreign banks to incorporate intermediate holding companies with the host country. This helps financial regulators to keep an eye on foreign banks, to supervise in effective manner, making sure that they are making compliance with domestic regulatory framework and fulfilling their obligations.

This chapter analyses the role of the Basel Committee on Banking Supervision ('BCBS') standards, as non-binding soft law, in hardening the law on regulation of global finance in domestic laws through three different pressure mechanisms. The first is the IMF's macroprudential surveilliance ('FSAP'), Basel Committee's technical auditing ('RCAP'), and the extraterritorial leverage of market access rules. The efficacy of these mechanisms depends on the jurisdiction and its position in global financial system. Pakistan as emerging market takes adoption led by coercive conditionality (IMF FSAP) as it is heavily reliant on external financing. The Switzerland as safe haven adopts the regulations led by RCAP yet there are issues of formal compliance trap as evident from the Credit Suisse debacle. Whereas the UK, as global hub, has adopted the standards led by market access reciprocity and its requirement to be Tier-1 financial centre which is balanced against sovereign competitiveness.

This chapter reviews the three mechanisms and how each jurisdiction positions itself in these mechanisms to meet its own national objectives and imperatives of global harmonization spearheaded by the BCBS.

The IMF's FSAP is primary macro-prudential surveillance tool to assess the jurisdiction's adaptation. However, legal effectiveness varies greatly depending on economic sovereignty of the concerned state. The analysis will discuss the 'Hard Law by Proxy' function of FSAP in dependent economies, while in developed economies it merely serves the function of 'Advisory Soft Law', this variation often results in implementation gap.

3.2.1. Pakistan: The Efficacy of Coercive Conditionality

In Pakistan, the effectiveness of FSAP in encouraging Basel adoption is considerably high because of country's debt obligation, thus it operates not through operation but through leverage of foreign debt obligation. This causal link between FSAP effectiveness and debt obligation of country is also evident from the legal trajectory of State Bank of Pakistan (SBP).In addition to suggesting reforms, the FSAP reviews of 2004 and 2017 also highlighted the structural inadequacies in central bank autonomy and the consolidated supervision became non-negotiable. In developed jurisdictions regulators are in position to debate the proportionality of Basel standard, in contrast in Pakistan adoption of Basel III is greatly based on strict 'non-prudential exemption' approach. This is also evident from the SBP's mandate that both foreign and domestic banks must strictly comply uniformly to capital and leverage standards, and the compliance is supervised through rigorous on-site inspections.

The influence of FSAP's is also apparent in country's primary legislation. In the year 2015, amendments were introduced to Banking Companies Ordinance, 1962 and the State Bank of Pakistan Act, 1956, with purpose to align the SBP's enforcement authority with FSAP's recommendations on crisis management. More recently, the Deposit Protection Act 2025 further introduced the autonomy reforms, aligning the primary legislation with IMF policy matrices. Here FSAP is not merely helpful in encouraging adoption, it resulted in effective amendments to primary legislations. The mechanism proves to be highly effective, as cost of non-compliance, loss of IMF liquidity support outweighs the domestic political costs and challenges in implementation. Thus, in Pakistan FSAP serves as hard law enforcement tool.

3.2.2. Switzerland: The Failure of Advisory Surveillance

The case study on Switzerland clarifies the critical weaknesses of the FSAP in relation to wealthy sovereign financial hub. FSAP appears unable to influence pre-emptive statutory reforms against the domestic political force. Switzerland has been subject to regular FSAP evaluations (2013, 2019, 2024) which consistently validated the general resilience but at same time flagged the specific legal inadequacies. Importantly, the prior reports of FSAP, highlighted the deficiencies in Swiss regime of 'Too Big to Fail' (TBTF), which was specifically regarded as lacking clear 'early intervention framework' and limitations of Swiss Financial Market Supervisory Authority (FINMA) to impose fines.

The reason of failure in effectiveness lies in fact that these warnings and regulations have not been put to statutory footing. As opposed to Pakistan, there are no such external financial pressures on Swiss Parliament, to adopt FSAP recommendations which are in contradiction with domestic preference for 'light touch' regulation. In result, Credit Suisse crisis appeared in 2023, the legal gaps highlighted by FSAP such as inability to intervene decisively before total collapse, highlights the catastrophic systemic failure. Following the crisis, 'Swiss Finish' regulatory overhaul resulted in grant of new powers to FINMA to impose administrative fines and require full capital backing in relation to foreign subsidiaries, thus validating the FSAP's technical accuracy.

However, it continues to undermine the FSAP's effectiveness in compliance mechanism. The reforms introduced appears to be reactive, triggered by a market collapse as opposed to be proactive based on FSAP's encouragement. This suggests that jurisdictions with high financial sovereignty, considers FSAP only a post-mortem validation tool as opposed to preventive enforcement mechanism.

3.2.3. The United Kingdom: Strategic Alignment and Reputation Management

The United Kingdom represents middle ground as to effectiveness of FSAP, where FSAP effectiveness is based on its strategic alignment with national interests rather than its coercive enforcement. After Brexit, UK's regulatory objective greatly shifted towards 'Secondary International Competitiveness and Growth Objective' (SICGO), with aim of balancing stability with attractiveness of City of London. In light of this, favorable FSAP recommendations have been given 'seal of approval' for the purpose of ensuring global investors that leaving EU does not mean that there is going to be deregulation. The Bank of England (BoE) and Prudential Regulation Authority (PRA) have utilized FSAP findings to justify their robust implementation of Basel standards, while tailoring specific areas for 'proportionality', such as the 'Strong and Simple' framework for smaller banks. Thus, the effectiveness of FSAP is greatly based on national interests and strategy. Although, FSAP's recommendations align with UK's policy to be responsible global jurisdiction, they have been adopted rigorously, as apparent from the enhancements to scope of Anti-Money Laundering (AML) framework under Money Laundering Regulations 2023.

However, where international pressures go against core national economic interests, such as the implementation timeline for Basel 3.1, the UK is able to diverge. The PRA's decision to delay Basel 3.1 implementation to January 2027, explicitly to coordinate with US delays and protect competitiveness, implies that although UK tends to respects the FSAP but it is not bound by it.

The FSAP model may be termed as a 'political pressure' mechanism of global finance. Compared to this, the Basel Committee's tool of Regulatory Consistency Assessment Programme ('RCAP'), established in 2012, acts as a 'technical auditor'. It allows the committee to monitor the consistency and timeliness of national regulations vis-à-vis Basel text leading it to issue various public grades of 'compliant', 'largely compliance', or non-compliant. Prima facie, RCAP seems to be a highly effective mechanism to induce harmonization being successfully leading the convergence of 'risk-weight asset' ('RWA') calculations world-wide.

However, comparative legal examination would show a clear difference between standardization of ratios (arithmetic consistency) and the enforcement of those ratios in moments of crisis (substantive legal effectiveness). The experiences of the United Kingdom Pakistan, and Switzerland show that while RCAP is able to standardize the 'what' of regulation (as part of metrics), it does not effectively control the 'when' (timelines of implementation) or the 'how' (legal enforcement) which may lead to a dangerous 'formal compliance trap'.

3.3.1. Switzerland

The regulatory trajectory in the Switzerland serves as a critique of the limitation of RCAP – compared to Pakistan and even UK. Before the 2023 crisis, Switzerland consistently got compliant ratings in RCAP assessment for the Liquidity Coverage Ratio ('LCR') and Net Stable Funding Ratio ('NSFR'). The Swiss Liquidity Ordinance (LiqO) had been textually aligned with Basel III which maintains buffers which theoretically exceed global minimums.

However the Credit Suisse's collapse in March 2023 showed that formal RCAP compliance demonstrate no guarantee of systemic resilience where the underlying legislative framework does not have enforcement agility. While Credit Suisse had maintained liquidity buffers satisfying RCAP metrics the 'digital bank run' rendered the said arithmetic calculations are irrelevant since the Swiss Financial Market Supervisory Authority ('FINMA') did not have the hard law statutory powers of intervening decisively before the point of being non-viable.

The methodology of RCAP is by nature limited to the review of text of regulations, seeing only if the 'High Quality Liquid Assets' definition in Swiss law matches the text of Basel. It does not and inherently cannot ascertain whether the national legal order provides regulatory authority with sufficient authority to demand capital or freeze outflows in case of a panic. This is fully evident from the Swiss Federal Administrative Court's 2025 ruling that FINMA's write-down of AT1 bond was unlawful as it lacked explicit statutory basis. A fatal flaw was exposed that RCAP had validated the capital instruments' (AT1 bonds) quality, it could not ascertain its legal certainty for the loss-absorption mechanism.

Therefore, in case of safe haven jurisdictions, RCAP performs as a mechanism of false assurance, which validates technical ratios but ignores legal voids rendering it unenforceable in practice.

3.3.2. English Approach: Global synchronization versus sovereign competitiveness

In the UK, the RCAP's effectiveness is limited by a different element which is the re-emergence of sovereign competitiveness. While the UK uses RCAP for certification of qualify of the Prudential Regulatory Authority Rulebook, it does not accept the pressure of RCAP to implement timeliness conflicting with its national economic interests.

The PRA delayed the implementation of the Basel 3.1 package (as part of the Endgame reforms) till 1st January 2027. this strategy delay – aimed at aligning with the case of the US and the EU – directly conflicts with the RCAP objective of 'timely' adoptions. This delay has the legal cover under the Financial Services and Markets Act 2023 ('FSMA') that introduced the 'Secondary International Competitiveness and Growth Objective' ('SICGO'). The statutory goal critically alters the legal hierarchy wherein the regulatory must now balance the UK financial sector's 'capacity for growth' against the Basel standard of 'safety and soundness'.

Therefore, the effectiveness of RCAP in the UK is conflicted. It is very effective at defining the rules' substance as UK has adopted alignment with the Basel text as opposed to 'super equivalent' gold-plated language to maintain UK's global standing. Nonetheless it is highly ineffectiveness at inducing pace of reforms. The approach UK shows that major global financial hubs view RCAP compliance as a kind of a menu of standards to choose for implementation at their time choices using the soft nature of law to piroritise its own domestic market protection over global market harmonization.

3.3.3. Case of Emerging Pakistan: RCAP as Seal of Legitimacy

Pakistan – in contrasted to UK's calculated delays and Switzerland's hidden legal gaps – views RCAP compliance as existential necessity to maintain global legitimacy. being an emerging market that heavily relies on external financing and correspondent banking relations, RCAP compliance is a tool that serves a critical signaling function to the IMF and foreign investors.

The dynamic is most obvious from the aggressive 'parallel run' strategy for Phase II of Basel III by the State Bank of Pakistan ('SBP') which is operational from September 2025 and will last till June 2026. In contrast to the UK, which has delayed the implementation for sake of competitiveness, Pakistan has accelerated adoption to establish its competence. The SBP enforced capital standards exceeding Basel minimum standards with the sector observing a Capital Adequacy Ratio ('CAR') of around 21.4% as of mid-2025, which is much higher than the regulatory minimums.

The RCAP's effectiveness in this context is driven by the notion of 'no prudential exemption' approach. This is because Pakistan cannot afford any reputational cost of 'non-compliant' or 'materially non-compliant' rating. Resultantly, RCAP creates 'hard law' pressure under which the SBP converts Basel text into binding Circulars for banks with little room for national deviance. UK can afford to cite 'competitiveness' justifying delays, Pakistan employs RCAP to 'import' credibility. Therefore, it is paradoxical that RCAP is most effective in jurisdictions having least systemic influence, forcing strict adherence to very complex standards – such as the standardized output floor – even where local market conditions would justify using a simpler approach.

3.3.4. Limits of Technical Auditing

The comparative analysis has shown that RCAP did succeed in evolving a harmonised language of banking regulation but was not able to lead to a common application framework. For Pakistan it is a legitimacy tool. In such emerging economies, it compels full application of global standards into domestic hard law as the cost of exclusion from financial system of the world is too high. For safe heaven Switzerland economy, it is a mere façade. It validates the calculus of liquidity and capital but does not notice the statutory fragility of enforcement system leadings to a dangerous sense of security. In case of UK, as a global financial hub, it is negotiating standard. While it can create baseline for rules, the sovereign laws like FSMA allow the jurisdiction to alter the timeline for its own competitive advantage.

While the FSAP is sustained by political leverage and RCAP by image-driven signaling, the third and indeed the most effective framework for "hardening" Basel soft law is the extraterritorial leverage of National Market Access. Codes of reciprocity are responsible for the functioning of the said framework; for a bank to runs it operation in a non-domestic jurisdiction (the "Host"), its jurisdiction of origin (the "Home") must display a compliance-oriented mechanism of parallel efficiency. This amounts to a practice which is usually explained in legal scholarship as the "Brussels Effect" or "Washington Effect," wherein the preferred regulatory approach of dominant financial centers are traded across the globe. A cross-jurisdictional analysis of Switzerland, United Kingdom, and Pakistan provides that prerequisites for market access operate as a de facto supremacy clause, efficiently transcending domestic preferences to comply with international standards.

A. The United Kingdom: The Sovereignty Paradox and the "Equivalence" Leash

The United Kingdom identifies its current self in a "sovereignty paradox," in the context of the Sovereignty Paradox and the "Equivalence" Leash Post-Brexit. Despite the political rationale for the withdrawal from European Union was to recapture agency over regulatory preferences, the pecuniary significance of keeping the City of London as a international clearing hub requires disciplined observation of international standards. The notion of "regulatory equivalence" serves as the major legal transmission belt for this persuasion.

In relation to the UK-domiciled Global Systemically Important Banks (G SIBs) such as HSBC and Barclays to keep uninterrupted access to EU markets and US based firms responsible for derivates clearing, the UK's pragmatic regime is required to acknowledge "equivalent" by the European Commission and the Commodity Futures Trading Commission (CFTC). This common practice in relation to markets generates a "hard law" floor that restricts the vision of the Financial Services and Markets Act 2023 regarding deregularization.

Despite the Act establishing the "Secondary International Competitiveness and Growth Objective" (SICGO) to build a more effective regulatory landscape, the UK has been lawfully precluded from contradicting the Basel III text. To illustrate, while the principle of "proportionality" has been lately considered by the Prudential Regulation Authority (PRA) in order to explain the rules for small domestic banks (the "Strong and Simple" framework), it has professionally applied the Basel 3.1 "Endgame" standards to globally operational banks.

The "Market Access" framework in this context works as a regulatory oversight over the legislative sovereignty. If the UK was to invoke its sovereign right to override capital regulatory mechanism for its G-SIBs, it would risk its status of "equivalence," involving higher capital charges for EU/US counterparts having bilateral relations with UK organizations. Resultantly, the UK's internalization of Basel standards is guided less by faith in the unchallenged supremacy of the rules and more by the imperative of interoperability. The "soft law" of Basel translates into "hardened" due to the reason that it is primary tools that provide access to the foreign markets.

B. Switzerland:

The response sanctioned by the Switzerland in the form of "Swiss Finish" against the Host Regulator Pressure, highlights its practical knowledge regarding how "Host" state regulators guide the "Home" country law making via the regulation of non-domestic entities in a effective manner. It was highlighted by the 2023 crash of Credit Suisse; the inability of transnational resolution strategies, and dominating foreign regulatory authorities (specifically the US Federal Reserve and the UK PRA) to require more strict ring-fencing of capital for Swiss entities established in their jurisdictions.

The directly channeled legislative response to this extraterritorial pressure is the proposal laid down by the Swiss Federal Council's September 2025 to sanction full capital regard for non-domestic interested parties. The former institutional framework allowed the Swiss parent banks to hold only partial capital in regard to their foreign overseas subsidiaries, a norm that increased parent-level ratios but exposed them to the financial losses occurring in foreign jurisdiction. The latest proposed framework makes its mandatory for the Swiss Systemically Important Banks (SIBs) to sanction a comprehensive deduction in proportion to the carrying value of foreign participations from their Common Equity Tier 1 (CET1) capital.

This legal maneuvering, a central constituent of the post-crisis "Swiss Finish" is practically a submission to the demands of foreign market access. In order to make sure that UBS (now the sole Swiss G-SIB) can sustain the operation of its large subsidiaries in New York and London without attracting severe regional liquidity shortfalls, Switzerland is required to mutates its groups level solvency provision according to the ambitions of Host regulators. In the current scenario, the institutional framework regarding market access works "upwards" persuading the Home regulator (FINMA) to reduce the flexibility of its own statutes to uphold the safety concerns of the Host regulator who are responsible for the authorization to operate internationally.

C. Pakistan: Correspondent Banking as the Ultimate Enforcer

Correspondent Banking works as the sovereign enforcing power for Pakistan, the market access framework works rather through the available mechanism of Correspondent Banking Relationships (CBRs) than the "equivalence" or subsidiary licensing. As an growing market with a dollar dominated trade account, the capability of Pakistani Banks to process US dollar transaction is contingent upon having banking relationships with major EU and US clearing banks.

The clearing banks discussed earlier operating as per the strict "Know Your Customer's Customer" (KYCC) is regulated by their national regimes (such as the US office of the Comptroller of the Currency), operating as a de facto international regulator. Respondent banks in Pakistan are required by them to practice observation of Basel III capital and transparency standards as a prerequisite for business relations. Non-compliance of such provision does not only amount to regulatory fines; it also causes "de-risking", the withdrawal of the CBR which practically removes the bank from international financial system.

This interplay of market forces demonstrates the SBP's proactive implementation of Basel III disclosure and capital standards. The SBP's non-negotiable "no-prudential-exemption" policy for foreign exchange access and capital efficiency is guided by the necessity of preserving these lifelines. Contrary to the UK, wherein equivalence is negotiated, Pakistan is required to comply with the standards demonstrated by the international clearing network. Hence, in the context of Pakistan, market access if the most deciding factors of all, it translates Basel compliance from a policy choice to the imperative for economic sustainability.

D. Synthesis: The Extraterritorial Hierarchy

Comparative analysis of dynamic of market access across the three jurisdiction highlights a chain of influence:

• In the UK (The Peer): Market access acts as a binding force like a Treaty obligation. It persuades a "negotiated alignment" wherein the UK displays observation of global standards to maintain bilateral privileges (equivalence).
• In Switzerland (The Parent): Markets access works as a Ring-Fencing force. Host regulators (US/UK) necessitates the Swiss Home regulator to tighten its guidelines on capital deductions to safeguards their local jurisdiction from Swiss contagion.
• In Pakistan (The User): Market access is present like a Gatekeeper, wherein the international clearing banks enforce compliance with Basel provision as a criterion for inclusion into the payment system, practically specializing the implementation of International Law.

The comparison of these three jurisdictions highlights the FSAP's effectiveness in encouraging adoption of Basel is inversely proportional to country's financial autonomy and economic position. This hierarchy underpins that FSAP suffers from significant gap in enforcement and global implementation. It is effective in hardening of soft law in developing economies, where it is least needed on account of lesser systemic risks. In contrast, it fails to compel necessary statutory amendments in developed economies that pose greatest systemic risks to global economies. It appears that effectiveness of MF's FSAP, the Basel Committee's RCAP, and national market access rules is not uniform; it is hierarchial and depends on whether the target country is a rule-taker (Pakistan), a rule-maker (United Kingdom), or a rule-protector (Switzerland).

In Pakistan, FSAP is highly effective because the recommendations are often incorporated into domestic legislation in response to IMF's conditions for loan programs. It acts as 'legislative conditionality', directly shaping the State Bank of Pakistan Act and Banking Companies Ordinance. In Switzerland, FSAP appears ineffective as preventive tool, Swiss parliament often tends to ignore the recommendations relating to lack of early intervention powers and administrative fine, and the change was seen in response to credit Suisse crisis. Thus, it would not be wrong to say that FSAP is enforcement tool for dependent economies, but merely an advisory mirror for sovereign financial hubs.

3.5.2. Policy implications

To minimize the adoption-resilience gaps the international compliance architecture must shift from standard monitoring to standard auditing. It is recommended that FSAP should move away from mere assessing supervisory acts to auditing the underlying intervention powers and legal immunities of the regulators. the complaint rating should not be possible if the regulatory has no statutory authority to freeze assets or impose finances without court delays. Similarly RCAP must have a legal enforceability module. It is not sufficient to verify that a country has been adopting the LCR. The assessment must focus on verifying whether insolvency laws allow regulators ring-fencing the liquidity in cross-border resolution case. Further, the market access rules must be harmonised for preventing 'regulatory arbitrage'. The current system is where the US and UK effectively create global standards based on extraterritoriality creating stable but unequal system. Creating a global equivalence framework under the FSB can provide a much more transparent mechanism to harden soft law compared to current bilateral ultimatum patchworks.